The President yesterday fired another salvo in his battle with the nation’s largest banks. He wants to make sure taxpayers get paid back for the bailout. The recent spate of excessive bonuses set off this proposal.
I do not think the size of executive compensation is really the issue here. The problem is that the gang of pirates at the helm of the private financial system have little incentive to loan money. They are making piles of profits by doing very little; borrow for nothing and buy Treasures and make the spread.
They get this rare privilege because they are supposed to grease the wheels of the economy with credit. This is not happening. The frustration in my business is over the top. Banks are behaving poorly again, only this time they have gone too far the other direction.
What happened to the era of conservative bankers? You know, those guys with three-piece suits in the black and white movies? They were dull, prudent and knew the difference between good and bad credit risks.
These guys go from loaning money to people with no jobs to not loaning money to people with good jobs and credit. The President is going after them with this new tax of banks. If the tax does not survive Congress, he still may get his way. Perhaps the 50 largest banks will heed this shot over the bow.
The cyber-fracas now going on between Google and the Chinese is perhaps a preview of how future wars between major powers will be fought. Bytes will replace bullets. It will be more important to produce hackers than high school guards.
I believe the last conventional war was fought in Korea. Terrorism and hacking are most likely to be the weapons of choice in this century. It cost far less to educate and army of cyber-warriors than it does to develop F-22s. Unfortunately for America, these new warriors have the potential to level the playing field among nations, erasing much of our current security advantages.
No one can nor wants to challenge this country on a conventional battlefield. The attack on Google was not a Pearl Harbor, but we had better pay attention to it. Our collective safety now more than ever will depend on educated workers who can design cyber-shields and airport screening devices.
It is ironic that most defense-hawks in this country would rather spend money on the tools of war and not on how to educate those who can design the new tools. Just over fifty years ago we rose to the challenge from Moscow and beat them to the moon. This was done by a concerted government-funded national effort to teach science in the schools.
We ignore this cheap lesson from the Chinese at our own peril. Wiser heads know we cannot rest on past victories. This country, since 1980 so focused on short-term rewards and low taxes, had better dig deep and start pouring money into our schools.
Google’s decision to leave the China market is interesting on several levels. Western business interests have pursued the Holy Grail of ‘The ChinaMarket’ for the past 150 years. No one power or one interest has ever found much enduring success there with the exception of the Brits and the Portuguese. The lure of all of those consumers will probably bring Google back but for now their stand is a curious mix of politics and money. I want to give Google some credit for having a sound corporate moral compass but the skeptic in me says otherwise. In the end, I think there will be some compromise that will be difficult since both sides need to save face. Both parties can benefit from each other, eventually they will reconcile.
Perhaps Google never really understood the centuries-old methods of doing business in China. Even during periods of national weakness, the size and complexity of that society dictated doing things more the Chinese way.
Yesterday I noted that it is important to appreciate the difference between banks and bankers. Think of the latter as a close-knit economic guild. Because of this, they can move freely from bank to bank, collecting bonuses and options along the way. No where is it remotely important to actually perform well.
If you doubt this, just check the roster of those at the helms of the nation’s financial institutions. Much in the mode of the Chinese Cultural Revolution, this group of pirates has been ‘rehabiliated’. No matter the scope of their past and endless financial missteps, all has been forgiven. The inmates are back in charge.
The President assumed his pardon would carry with it some form of obligation. But thus far, the ex-miscreants have slyly thumbed their nose at our leader. They are chastened to be sure, but they have discovered a vital truth: it is not necessary to loan money to make a bank profitable. Just borrow at the discount window for nothing and sit on treasuries.
I know it is prudent that alcoholics should avoid bars, but we need credit in this economy. The President must either accept the reality of a very slow economic recovery or be ready to endure the slings and arrows from Fox News when he is forced to semi-nationalize the banks.
Today’s U-T business section featured a real retro-headline, “Finally,good news on 3 fronts”. Unfortunately below the fold was this grim header, “Del Mar Heights office building sold at great loss”. These headlines are emblematic of our times. True the economy is improving for some people, but for others, it remains a train wreck.
The Administration still has no core philosophy when it comes to this financial crisis. The President does not want to take the kind of measures that may be required. I think he either needs to let the market (meaning the banks) work out the real estate problem or fully wade into the lending business. Lurching about in the middle probably is going to make matters worse. I am a real fan of this guy, but perhaps some of his critics have it right.
Bankers have little incentive to help out the rest of us. You may note I used ‘bankers’ and not banks. The former, a group of freebooters, are doing just fine thank you. But more on that later.
